UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                             ----------------------

                                   FORM 10-QSB

  X     QUARTERLY  REPORT UNDER  SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE
-----   ACT OF 1934

                For the quarterly period ended September 30, 1998

                                       OR

        TRANSITION  REPORT  PURSUANT  TO SECTION  13 OR 15(d)  OF THE SECURITIES
-----   EXCHANGE ACT OF 1934

            For the transition period from __________ to __________.



                         Commission File Number 0-12593
                                                -------


                         PHOENIX LEASING INCOME FUND VII
--------------------------------------------------------------------------------
                                   Registrant

           California                                    68-0001202
----------------------------------            ----------------------------------
      State of Jurisdiction                   I.R.S. Employer Identification No.


2401 Kerner Boulevard, San Rafael, California                     94901-5527
--------------------------------------------------------------------------------
    Address of Principal Executive Offices                         Zip Code

       Registrant's telephone number, including area code: (415) 485-4500
                                                           --------------

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
preceding requirements for the past 90 days.

                               Yes   X   No 
                                   -----    -----

345,431 Units of Limited  Partnership  Interest were outstanding as of September
30, 1998.

Transitional small business disclosure format:

                               Yes       No   X
                                   -----    -----



                                  Page 1 of 14


<PAGE>


                          Part I. Financial Information
                          -----------------------------
                          Item 1. Financial Statements
                 PHOENIX LEASING INCOME FUND VII AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                 (Amounts in Thousands Except for Unit Amounts)
                                   (Unaudited)
                                                    September 30,  December 31,
                                                        1998           1997
                                                        ----           ----
ASSETS
Cash and cash equivalents                              $1,264         $  333

Accounts receivable (net of allowance for
   losses on accounts receivable of $23 and
   $37 at September 30, 1998 and December
   31, 1997, respectively)                                 11             33

Notes receivable (net of allowance for losses
   on notes receivable of $0 and $55 at
   September 30, 1998 and December 31, 1997,
   respectively)                                         --              601

Equipment on operating leases and held for
   lease (net of accumulated depreciation of
   $293 and $715 at September 30, 1998 and
   December 31, 1997, respectively)                      --             --

Property, cable systems and equipment (net
   of accumulated depreciation of $579 and
   $472 at September 30, 1998 and December
   31, 1997, respectively)                                698            774

Cable subscriber lists and franchise rights
   (net of accumulated amortization of $794
   and $660 at September 30, 1998 and
   December 31, 1997, respectively)                       498            632

Investment in joint ventures                              245            410

Other assets                                              184            179
                                                       ------         ------
     Total Assets                                      $2,900         $2,962
                                                       ======         ======
LIABILITIES AND PARTNERS' CAPITAL

Liabilities
   Accounts payable and accrued expenses               $  306         $  352

   Liquidation fees payable to General
     Partner                                              953            953
                                                       ------         ------
     Total Liabilities                                  1,259          1,305
                                                       ------         ------
Partners' Capital
   General Partner                                        348            348

   Limited Partners, 480,000 units authorized,
     366,432 units issued and 345,431 and
     345,496 units outstanding at September
     30, 1998 and December 31, 1997, respectively       1,293          1,298

Unrealized gains on available-for-sale securities        --               11
                                                       ------         ------
     Total Partners' Capital                            1,641          1,657
                                                       ------         ------
     Total Liabilities and Partners' Capital           $2,900         $2,962
                                                       ======         ======


        The accompanying notes are an integral part of these statements.



                                       2
<PAGE>
   
                 PHOENIX LEASING INCOME FUND VII AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
               (Amounts in Thousands Except for Per Unit Amounts)
                                   (Unaudited)

                                           Three Months Ended  Nine Months Ended
                                              September 30,      September 30,
                                               1998   1997        1998   1997
                                               ----   ----        ----   ----
INCOME

   Cable subscriber revenues                  $ 149   $ 156      $ 448   $ 456
   Rental income                                 52      36        100     117
   Equity in losses from joint ventures,
     net                                       (106)   (125)       (91)    (17)
   Interest income, notes receivable           --      --          151      17
   Other income                                  32       7         65      42
                                              -----   -----      -----   -----
     Total Income                               127      74        673     615
                                              -----   -----      -----   -----

EXPENSES

   Depreciation and amortization                 73      72        241     216
   Lease related operating expenses               6    --            7       1
   Cable systems operations                      77      72        223     224
   Management fees to General Partner            13      15         73      37
   Provision for losses on receivables           17       8         19      11
   Reimbursed administrative cost to
     General Partner                              2    --            5    --
   Legal expenses                                 4      73         30     124
   General and administrative expenses           20      22        104      81
                                              -----   -----      -----   -----
     Total Expenses                             212     262        702     694
                                              -----   -----      -----   -----

Net loss before income taxes                    (85)   (188)       (29)    (79)
Income tax benefit (expense)                      2      (3)        24    --
                                              -----   -----      -----   -----

NET LOSS                                      $ (83)  $(191)     $  (5)  $ (79)
                                              =====   =====      =====   =====


NET LOSS PER LIMITED
   PARTNERSHIP UNIT                           $(.20)  $(.50)     $(.01)  $(.23)
                                              =====   =====      =====   =====

DISTRIBUTIONS PER LIMITED
   PARTNERSHIP UNIT                           $--     $2.47      $--     $6.25
                                              =====   =====      =====   =====


ALLOCATION OF NET LOSS:
     General Partner                          $ (12)  $ (18)     $--     $  (1)
     Limited Partners                           (71)   (173)        (5)    (78)
                                              -----   -----      -----   -----

                                              $ (83)  $(191)     $  (5)  $ (79)
                                              =====   =====      =====   =====

        The accompanying notes are an integral part of these statements.



                                       3
<PAGE>

                 PHOENIX LEASING INCOME FUND VII AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Amounts in Thousands)
                                   (Unaudited)
                                                             Nine Months Ended
                                                               September 30,
                                                              1998        1997
                                                              ----        ----
Operating Activities:
--------------------
   Net loss                                                 $    (5)    $   (79)

   Adjustments to reconcile net loss to net
     cash provided by operating activities:
       Depreciation and amortization                            241         216
       Equity in losses from joint ventures, net                 91          17
       Gain on sale of equipment                                 (1)        (13)
       Gain on sale of marketable securities                    (15)       --
       Provision for losses on accounts receivable               19          11
       Decrease (increase) in accounts receivable                 3          (9)
       Decrease in accounts payable and accrued
         expenses                                               (46)        (42)
       Increase in deferred income tax asset                    (24)       --
       Increase in other assets                                --           (16)
                                                            -------     -------
Net cash provided by operating activities                       263          85
                                                            -------     -------

Investing Activities:
--------------------
   Principal payments, notes receivable                         601          30
   Proceeds from sale of equipment                                1          13
   Proceeds from sale of marketable securities                   23        --
   Distributions from joint ventures                             74         242
   Property, cable systems and equipment                        (31)        (33)
                                                            -------     -------

Net cash provided by investing activities                       668         252
                                                            -------     -------

Financing Activities:
--------------------
   Distributions to partners                                   --        (2,163)
                                                            -------     -------

Net cash used by financing activities                          --        (2,163)
                                                            -------     -------

Increase (decrease) in cash and cash equivalents                931      (1,826)

Cash and cash equivalents, beginning of period                  333       2,155
                                                            -------     -------

Cash and cash equivalents, end of period                    $ 1,264     $   329
                                                            =======     =======

        The accompanying notes are an integral part of these statements.


                                       4
<PAGE>


                 PHOENIX LEASING INCOME FUND VII AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

Note 1.  General.
         -------

         The accompanying  unaudited condensed consolidated financial statements
have been prepared by the  Partnership  in accordance  with  generally  accepted
accounting  principles,  pursuant to the rules and regulations of the Securities
and  Exchange  Commission.  In  the  opinion  of  Management,   all  adjustments
(consisting  of  normal  recurring  accruals)  considered  necessary  for a fair
presentation  have  been  included.   Although   management  believes  that  the
disclosures are adequate to make the information presented not misleading, it is
suggested that these condensed financial  statements be read in conjunction with
the financial  statements and the notes included in the Partnership's  Financial
Statement, as filed with the SEC in the latest annual report on Form 10-K.

         The Partnership  Agreement  stipulates the methods by which income will
be allocated to the General Partner and the limited  partners.  Such allocations
will be made using income or loss calculated under Generally Accepted Accounting
Principles  for book purposes,  which varies from income or loss  calculated for
tax purposes.

         The  calculation  of items of income and loss for book and tax purposes
may result in book basis  capital  accounts that vary from the tax basis capital
accounts. The requirement to restore any deficit capital balances by the General
Partner  will  be  determined  based  on the  tax  basis  capital  accounts.  At
liquidation  of the  Partnership,  the General  Partner's  remaining  book basis
capital  accounts  will be reduced to zero through the  allocation  of income or
loss.

         Phoenix  Cablevision of Oregon,  Inc., a wholly owned subsidiary of the
Partnership, entered into an Asset Purchase Agreement dated July 9, 1998 to sell
all or  substantially  all of its assets.  On November 2, 1998,  $1,974,000  was
received for the sale of the assets.

Note 2.  Reclassification.
         ----------------

         Reclassification  - Certain  1997  amounts  have been  reclassified  to
conform to the 1998 presentation.

Note 3.  Income Taxes.
         ------------

         Federal  and state  income tax  regulations  provide  that taxes on the
income  or loss of the  Partnership  are  reportable  by the  partners  in their
individual income tax returns. Accordingly, no provision for such taxes has been
made in the accompanying financial statements.

         Phoenix  Cablevision of Oregon,  Inc. (the Subsidiary) is a corporation
subject to state and  federal tax  regulations.  The  Subsidiary  reports to the
taxing  authority on the accrual basis.  When income and expenses are recognized
in  different  periods  for  financial  reporting  purposes  than for income tax
purposes,  deferred taxes are provided for such differences  using the liability
method.


                                       5
<PAGE>

Note 4.  Notes Receivable.
         ----------------

         Impaired Notes Receivable. At September 30, 1998, the net investment in
notes is $0. The average  recorded  investment in impaired loans during the nine
months ended September 30, 1998 and 1997 was approximately $18,000 and $624,000,
respectively.

         The activity in the allowance for losses on notes receivable during the
nine months ended September 30, is as follows:
                                                     1998        1997
                                                     ----        ----
                                                   (Amounts in Thousands)

         Beginning balance                           $  55       $ 359
             Provision for losses                     --          --
             Write downs                               (55)        (83)
                                                     -----       -----
         Ending balance                              $--         $ 276
                                                     =====       =====

         The Partnership  wrote-off the outstanding  note receivable  balance of
$55,000 during the nine months ended September 30, 1998 from a cable  television
system  operator which was considered to be impaired.  This note  receivable had
been fully reserved for in a previous year.

Note 5.  Net Income (Loss) and Distributions Per Limited Partnership Unit.
         ----------------------------------------------------------------

         Net income (loss) and distributions  per limited  partnership unit were
based on the limited partners' share of net income (loss) and distributions, and
the weighted average number of units  outstanding of 345,431 and 345,974 for the
nine months ended  September  30, 1998 and 1997,  respectively.  For purposes of
allocating income (loss) and  distributions to each individual  limited partner,
the Partnership  allocates net income (loss) and  distributions  based upon each
respective  limited  partner's ending capital account  balance.  The use of this
method  accurately   reflects  each  limited  partner's   participation  in  the
partnership  including  reinvestment through the Capital Accumulation Plan. As a
result,  the  calculation  of net income  (loss) and  distributions  per limited
partnership  unit is not indicative of per unit income (loss) and  distributions
due to reinvestments through the Capital Accumulation Plan.

Note 6.  Investment in Joint Ventures.
         ----------------------------

Equipment Joint Ventures
------------------------

         The aggregate financial  information of the equipment joint ventures is
presented as follows:

                                                  September 30, December 31,
                                                      1998          1997
                                                      ----          ----
                                                    (Amounts in Thousands)

         Assets                                       $243          $988
         Liabilities                                     4            58
         Partners' Capital                             239           930



                                       6
<PAGE>

                              Three Months Ended     Nine Months Ended
                                 September 30,         September 30,
                                1998       1997       1998       1997
                                ----       ----       ----       ----
                                        (Amounts in Thousands)

         Revenue              $    63    $    44    $   117    $   996
         Expenses                 640        685        662      1,146
         Net Loss                (577)      (641)      (545)      (150)

Financing Joint Ventures
------------------------

         The aggregate financial  information of the financing joint ventures is
presented as follows:

                                                    September 30, December 31,
                                                        1998          1997
                                                        ----          ----
                                                      (Amounts in Thousands)

         Assets                                         $41           $39
         Liabilities                                     18            11
         Partners' Capital                               23            28

 
                              Three Months Ended     Nine Months Ended
                                 September 30,         September 30,
                                1998       1997       1998       1997
                                ----       ----       ----       ----
                                        (Amounts in Thousands)

         Revenue                $ 5        $21         $66       $40
         Expenses                --          1           3         5
         Net Income               5         20          63        35
 
Foreclosed Cable Systems Joint Venture
--------------------------------------

         The aggregate  financial  information of the  foreclosed  cable systems
joint ventures is presented as follows:

                                                 September 30, December 31,
                                                     1998          1997
                                                     ----          ----
                                                   (Amounts in Thousands)

         Assets                                    $1,591        $1,809
         Liabilities                                  329           358
         Partners' Capital                          1,262         1,451



                                       7
<PAGE>

                              Three Months Ended     Nine Months Ended
                                 September 30,         September 30,
                                1998       1997       1998       1997
                                ----       ----       ----       ----
                                        (Amounts in Thousands)

         Revenue                $ 228      $ 224      $ 676      $ 660
         Expenses                 233        234        680        682
         Net Loss                  (5)       (10)        (4)       (22)

Note 7.  Subsequent Events.
         -----------------

         On October 19, 1998,  Phoenix Concept  Cablevision,  Inc., a foreclosed
cable television  system joint venture,  received proceeds of $1,681,000 for the
sale of its  assets.  The  Partnership  owns a  22.32%  interest  in this  joint
venture.

         On November 2, 1998,  proceeds of $1,974,000  was received for the sale
of the assets of Phoenix  Cablevision  of Oregon,  Inc.  These  assets had a net
carrying value of approximately $1,200,000 at September 30, 1998.

         A summary of the unaudited pro forma consolidated results of operations
of the Partnership for the interim periods ended September 30, 1998 and 1997, as
if the sale of Phoenix Cablevision of Oregon, Inc. had occurred at the beginning
of these periods, is as follows:


                                          Three Months Ended  Nine Months Ended
                                             September 30,      September 30,
                                             1998     1997     1998     1997
                                             ----     ----     ----     ----
                                                 (Amounts in Thousands)

Total income                                $  81    $  40    $ 335   $ 168
Net income (loss)                             (75)    (200)      68     (80)
Net income per limited partnership unit      (.22)    (.58)     .20    (.23)

         These pro forma results reflect certain  adjustments which, among other
things,  include a decrease in revenues  from cable  subscribers,  decreases  in
operating  expenses and decreases in depreciation  and  amortization of tangible
and  intangible  assets.  These pro forma  consolidated  statements  should  not
necessarily  be considered as indicative of the results that would have occurred
had the acquisitions been made at the beginning of the year.


                                       8
<PAGE>


                 PHOENIX LEASING INCOME FUND VII AND SUBSIDIARY


Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         -----------------------------------------------------------------------
         of Operations.
         -------------

Results of Operations

         Phoenix  Leasing  Income  Fund  VII and  Subsidiary  (the  Partnership)
reported a net loss of $83,000 and $5,000 during the three and nine months ended
September  30,  1998,  respectively,  as compared to a net loss of $191,000  and
$79,000  during the same  periods in the  preceding  year.  The  improvement  in
earnings for the three and nine months ended  September 30, 1998, as compared to
the  same  periods  in  1997,  is a  result  of an  increase  in  other  income.
Additionally,  the  increase  in  interest  income  from notes  receivable  also
contributed to the  improvement in earnings for the nine months ended  September
30, 1998, as compared to the same period in the prior year.

         Total revenues  increased by $53,000 and $58,000 for the three and nine
months ended September 30, 1998, as compared to the same periods in the previous
year.  This increase is the result of an increase in other income of $25,000 and
$23,000 for the three and nine months ended  September  30, 1998,  respectively,
compared  to the  same  periods  in  1997.  The  increase  in  other  income  is
attributable to an increase in interest income and a gain on sale of securities.

         The increase in interest  income from notes  receivable of $134,000 for
the nine months ended  September  30,  1998,  compared to the same period in the
prior year,  is due to the  Partnership  receiving  settlement  proceeds  from a
defaulted note receivable.  The Partnership received proceeds, during the second
quarter of 1998, of $752,000 as a settlement on a note with a carrying  value of
$601,000.

         An additional factor contributing to the increase in total revenues for
the three months ended  September  30, 1998 is the increase in rental  income of
$16,000,  as compared to the same  period in the prior  year.  This  increase in
rental income is due to settlements received on defaulted leases.

         Total  expenses  decreased  by  $50,000  for  the  three  months  ended
September 30, 1998 and  increased by $8,000 for the nine months ended  September
30,  1998,  as compared to the same  periods in the prior year.  The decrease in
expenses for the three months ended  September 30, 1998, as well as for the nine
months  ended  September  30,  1998,  is due to a decline in legal  expenses  of
$69,000,  as compared to the same period in the prior year.  Legal expenses were
higher in the prior year due to a defaulted  note  receivable.  The  Partnership
received a settlement  on this note during the nine months ended  September  30,
1998.

          The increase in expenses for the nine months ended  September 30, 1998
is primarily  attributable  to increases in most expense  items with  management
fees to the General Partner and  depreciation  expense  contributing the largest
increase.  The increase in management  fees of $36,000 for the nine months ended
September  30,  1998,  compared  to the  same  period  in  the  prior  year,  is
attributable  to the  receipt of  settlement  proceeds  from a  defaulted  notes
receivable, as previously discussed.  Depreciation and amortization increased by


                                       9
<PAGE>

$25,000 for the nine  months  ended  September  30,  1998,  compared to the same
period in 1997, due to an increase in cable system depreciation. These increases
were  partially  offset by a decrease in legal  expenses of $94,000 for the nine
months ended  September  30, 1998,  compared to the same periods in the previous
year.

         Because Phoenix Leasing Income Fund VII is in its liquidation stage, it
is not expected that the Partnership  will acquire any additional  equipment for
its leasing  activities.  As a result,  revenues  from  leasing  activities  are
expected to continue to decline.  The aggregate original cost of equipment owned
by the  Partnership  is  $326,000 at  September  30,  1998,  as compared to $1.1
million at September 30, 1997.


Cable System
------------

         Cable subscriber revenue and cable system operations  expenses remained
relatively the same for the nine months ended September 30, 1998, as compared to
the same period in 1997.

Joint Ventures
--------------

         The Partnership has made investments in various equipment and financing
joint ventures along with other affiliated  partnerships  managed by the General
Partner for the purpose of spreading the risk of investing in certain  equipment
leasing and  financing  transactions.  These joint  ventures  are not  currently
making  any  significant  additional  investments  in new  equipment  leasing or
financing  transactions.  As a  result,  the  earnings  and cash  flow from such
investments  are  anticipated  to  continue  to  decline as the  portfolios  are
liquidated.

         Losses from joint  ventures  decreased  by $19,000 for the three months
ended  September  30, 1998,  but  increased by $74,000 for the nine months ended
September  30, 1998,  as compared to the same periods in the prior year.  During
the three months ended September 30, 1997, one equipment joint venture  recorded
provisions for additional  depreciation and losses for notes  receivable,  which
contributed to increasing losses for that period. Additionally, during the three
months ended September 30, 1998, this same joint venture experienced an increase
in earnings as a result of a write off of certain  liabilities.  The increase in
losses for the nine months  ended  September  30,  1998 is due to one  equipment
joint venture recognizing a write down due to a settlement.

Liquidity and Capital Resources

         The  Partnership's  primary  source of  liquidity  comes from its cable
television system operations and its equipment leasing and financing activities.
Additionally, the Partnership is in the process of liquidating the assets of the
Partnership  which will provide further liquidity to the Partnership as proceeds
from the sale of these assets are received.

         During the nine months ended  September 30, 1998, the net cash provided
by leasing, financing and cable television activities was $864,000,  compared to
$115,000  for the same  period  in the  prior  year.  The net  increase  in cash
generated is due to the receipt of a note receivable  settlement during the nine
months ended September 30, 1998.


                                       10
<PAGE>


         Distributions  from joint  ventures is another source of cash generated
by the Partnership.  The Partnership received  distributions from joint ventures
of $74,000 for the nine months ended  September  30, 1998,  compared to $242,000
for the same period in 1997. Distributions from joint ventures decreased for the
nine months ended  September 30, 1998,  compared to the same period in the prior
year,  due to the closure of one joint  venture as well as another joint venture
experiencing  a decline in cash  available  for  distributions  as a result of a
reduction in rental income and sales proceeds received.

         As of September 30, 1998,  the  Partnership  owned  equipment  held for
lease with a purchase  price of $288,000  and a net book value of $0 compared to
$1,048,000 and $0,  respectively  at September 30, 1997. The General  Partner is
actively engaged,  on behalf of the Partnership,  in remarketing and selling the
Partnership's off-lease equipment portfolio.

         The Limited  Partners  received  distributions of $0 and $2,163,000 for
the nine months ended  September 30, 1998 and 1997,  respectively.  As a result,
the cumulative  cash  distributions  to the Limited  Partners are $84,744,000 at
September 30, 1998 and 1997. The General  Partner did not receive  distributions
during the nine  months  ended  September  30,  1998 and 1997.  The  Partnership
anticipates making a distribution to partners on or before December 30, 1998.

         The General Partner  currently  anticipates  that it may not be able to
liquidate the remaining assets by December 31, 1998, as previously reported. The
remaining  assets of the  Partnership  consist  primarily  of an  investment  in
Phoenix  Pacific  Northwest  J.V., a foreclosed  cable  television  system joint
venture.  The General  Partner is continuing its efforts in marketing this cable
television system for sale.

         Cash on hand  and  cash  generated  from  cable  television,  equipment
leasing and financing  operations  has been and is anticipated to continue to be
sufficient to meet the Consolidated Partnership's ongoing operational expenses.

         On October 19, 1998,  Phoenix Concept  Cablevision,  Inc., a foreclosed
cable television  system joint venture,  received proceeds of $1,681,000 for the
sale of its  assets.  The  Partnership  owns a  22.32%  interest  in this  joint
venture.

         On November 2, 1998,  proceeds of $1,974,000  was received for the sale
of the assets of Phoenix  Cablevision  of Oregon,  Inc.  These  assets had a net
carrying value of approximately $1,200,000 at September 30, 1998.

Impact of the Year 2000 Issue

         The "Year 2000 problem" arose because many existing  computer  programs
use only the last two digits to refer to a year. Therefore,  these computers and
computer programs do not properly recognize a year that begins with "20" instead
of the familiar "19." If not corrected, many computer applications could fail or
create erroneous results.

         The  General  Partner  has  performed  an  assessment  of the  computer
programs  used to conduct the  business of the  Partnership  that are subject to
Year 2000 risk.  The General  Partner and its  affiliates  are  currently in the
process  of  testing,  upgrading,  modifying  and  replacing  existing  computer
programs  that  have  been  determined  not to be  Year  2000  compliant.  It is
estimated  that this project will be  completed  in mid 1999.  However,  if this


                                       11
<PAGE>

project is not  completed in a timely  matter,  the Year 2000 issue could have a
material impact on the Partnership's operations.  The costs of these changes are
being incurred by the General Partner or its  affiliates.  Costs incurred by the
Partnership will be expensed as incurred and are not currently anticipated to be
material to the Partnership's  financial position or results of operations.  The
General Partner currently does not have a contingency plan, but will continue to
evaluate the need for such plan as systems and programs are tested.

         The Partnership's  customers consist of cable subscribers,  lessees and
borrowers.  The  Partnership  does not have exposure to any individual  customer
that would materially  impact the Partnership  should the customer  experience a
significant Year 2000 problem.

         The assessments of the risks and costs of the Year 2000 issue are based
on management's  best estimates.  However,  there can be no guarantee that these
estimates will be achieved and the actual results could differ  materially  from
those estimates.


                                       12
<PAGE>


                         PHOENIX LEASING INCOME FUND VII

                               September 30, 1998

                           Part II. Other Information.
                                    -----------------


Item 1.       Legal Proceedings.
              -----------------

         On October 28, 1997, a Class Action Complaint was filed against Phoenix
Leasing  Incorporated,  Phoenix  Leasing  Associates,  II and III  LP.,  Phoenix
Securities  Inc.  and  Phoenix  American   Incorporated   (the  "Companies")  in
California  Superior Court for the County of Sacramento by eleven individuals on
behalf of investors in Phoenix Leasing Cash Distribution  Funds I through V (the
"Partnerships").  The  Companies  were served with the  Complaint on December 9,
1997. The Complaint  seeks  declaratory and other relief  including  accounting,
receivership,  imposition of a constructive  trust and judicial  dissolution and
winding up of the Partnerships,  and damages based on fraud, breach of fiduciary
duty and  breach  of  contract  by the  Companies  as  general  partners  of the
Partnerships.  Discovery has not commenced.  The Companies  intend to vigorously
defend the Complaint.

         Plaintiffs  severed  one cause of action  from the  Complaint,  a claim
related to the marketing and sale of CDF V, and  transferred  it to Marin County
Superior Court (the "Marin Action").  Plaintiffs  subsequently amended the Marin
Action on August 14, 1998. On October 23, 1998,  the Companies  filed a demurrer
to the Marin Action,  seeking its dismissal.  Discovery has not  commenced.  The
Companies intend to vigorously defend the Complaint.

Item 2.     Changes in Securities.  Inapplicable
            ---------------------

Item 3.     Defaults Upon Senior Securities.  Inapplicable
            -------------------------------

Item 4.     Submission of Matters to a Vote of Securities Holders. Inapplicable
            -----------------------------------------------------

Item 5.     Other Information.  Inapplicable
            -----------------

Item 6.     Exhibits and Reports on 8-K:
            ---------------------------

            a)  Exhibits:

                (27)  Financial Data Schedule

            b)  Reports on 8-K: None


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<PAGE>



                                   SIGNATURES


         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


                                           PHOENIX LEASING INCOME FUND VII
                                           -------------------------------
                                                   (Registrant)


    Date                       Title                             Signature
    ----                       -----                             ---------


November 11, 1998    Executive Vice President,             /S/ GARY W. MARTINEZ
-----------------    Chief Operating Officer               --------------------
                     and a Director of                     (Gary W. Martinez)
                     Phoenix Leasing Incorporated  
                     General Partner               
                     


November 11, 1998    Chief Financial Officer,              /S/ HOWARD SOLOVEI
-----------------    Treasurer and a Director of           --------------------
                     Phoenix Leasing Incorporated          (Howard Solovei)
                     General Partner               
                     


November 11, 1998    Senior Vice President,                /S/ BRYANT J. TONG
-----------------    Financial Operations                  --------------------
                     (Principal Accounting Officer)        (Bryant J. Tong)
                     and a Director of              
                     Phoenix Leasing Incorporated   
                     General Partner                


                                       14